Pt 3: Chapter 15 Notes Flashcards
Does the government have a role in the economy today?
yes
What is the government’s relationship to the economy in the US?
Government has an important role in regulating economy
How is efficiency achieved through government intervention?
- promoting competition
- making business pay for indirect costs
- deregulation and underregulation
How is equity achieved through government intervention?
Balance interests of society against the interests of efficiency specific to a certain corporation
Output of goods and services being the highest possible given the amount of input used
Economic efficiency
Costs of production that are incurred by society
Externality
Conservatives tend to value what?
efficiency (over equity)
The older wave: This view included dual use of federal lands for recreation and resource use
Conservatism
The newer wave: This view includes clean air, water, and land legislation. EPA of 1970, and global warming and energy policy
Environmentalism
Which country uses the most CO2 per person?
US
How does government promote business?
- government provided loans
- special tax breaks
- subsidies
- traditional services: education, transportation, and defense
How does government promote labor?
- National Labor Relations Act of 1935
- minimum wage
- maximum work week
- unemployment benefits
- nondiscriminatory hiring practices
How does government promote agriculture?
- Homestead act of 1862
- farm programs to eliminate some farming risk
- federal payments
- american farmers among the most heavily subsidized in the world
Federal payments account for more than a ___ of net agricultural income
1/5
This emphasizes the consumer (demand) component of the supply-demand equation
Demand-side policy
Demand-side policy includes what during economic depression or recession?
Government spending to alleviate it
Demand-side policy is generally preferred by who?
Democratic lawmakers
Demand-side policy can result in ___ budget deficits and an ____ national debt
Higher budget deficits
Increased national debt
This policy emphasizes the business (supply) component of the supply-demand equation
Supply-side policy
Supply-side policy includes tax breaks for who ? to encourage business investment with resulting increasing in employment and income
Tax breaks for firms and upper-income individuals
Supply-side policy is generally preferred by who?
Republican lawmakers
Supply-side policy can result in ____ budget deficits and an increased ____
higher budget deficits
increased national debt
During a recession, the demand side would want to do what? the supply side?
Recession:
- demand: increase spending
- supply: cut business taxes
In an inflation, the demand side would want to do what? the supply side?
Inflation:
- demand: decrease spending
- supply: increase business taxes
Republican and Democratic lawmakers are far apart on how best to deal with recessionary periods, but both parties do what?
enact policies that increase the national debt
What is the difference between budget deficit and national debt?
Budget deficit is how much you’re short in a fiscal year, national debt is how much you owe in total (sum of all budget deficits and interests incurred)
Revenue decisions (taxing and spending) of US
Fiscal policy
The money supply (almost exclusively through interest rates)
Monetary policy
This entity has control over the money supply by:
- raising/lowering the cash reserve required of member banks
- raise/lower interest rate on member banks
The fed (eral reserve?)
The Fed can fight an economic downturn by decreasing interest rate on loans to member banks and buying government securities. They can also do this, which they do when they think the economy is in a bad place
Lower reserve rate
Who is responsible for setting monetary policy?
The Federal Reserve
What does the fed do to control an inflation, which is the opposite of what they do when fighting an economic downturn?
- Increasing interest rate on loans to member banks
- raising reserve rate
- selling government securities (bonds, notes)
